The Australian Taxation Office (ATO) released the Second Commissioner’s remarks in an address presented at the Tax Institute’s National Transfer Pricing Conference held in Sydney on Wednesday, 14 August 2019.
In the address, the Second Commissioner spoke of the ATO’s ongoing focus on transfer pricing due to its importance to the Australian taxation system—in particular, comments on focus areas and “transfer mis-pricing traps” which provided some key insights on what could attract the ATO’s attention.
Inbound supply chains, related-party loans, and marketing hubs were key areas the ATO had directed its attention of late.
The ATO had recently signaled its focus on inbound supply chains, prompted by what had been observed as being a “race to the bottom in terms of the profit landed in Australia.” The Second Commissioner stated that:
Not only was this inappropriately reducing Australian tax, but also clogging up our APA processes with ambit claims, adversely affecting taxpayers with genuine prices seeking certainty.
Concerning related-party loans, the Second Commissioner said: “we have brought about $80 billion in previously high risk related party loans into low risk or ‘green zone’ arrangements, and expect this to increase as we resolve existing issues.”
The Second Commissioner also noted that the ATO had started to make inroads with its hubs strategy, stating that the tax authority was seeing a reduction on the use of these arrangements.
The Second Commissioner continued by listing a number of the traps that had been encountered, including:
The Second Commissioner concluded his speech with reminders to consider whether the transaction at issue makes commercial sense and, if it does not, not simply pricing a non-commercial transaction and to look at multiple methodologies to see if the price makes sense.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.